Getting a cool $1 million for retirement

NEW YORK (CNNMoney) -- I always hear that if someone starts investing in their 30s and earns 8% a year, they can retire with $1 million because of compound interest. Is this true and, if so, where can I find investments that will earn that return? -- Denise, Sacramento, Calif.

A 30-year-old who saves $500 a month and earns a return of 8% a year on those savings would end up with just over $1 million by age 65.

Similarly, if that same 30-year-old earned $40,000 a year and saved 12% of salary each month, she would also have roughly $1 million by 65, assuming 2% annual raises and an 8% annual return.

There are plenty more ways to reach $1 million, depending on when you start, how much you put away on a regular basis and how you invest what you save.

You can also estimate how many years it might take you to reach the seven-figure mark by going to our Millionaire Calculator and plugging in your age, projected investment return, the amount you've already saved and how much you plan to add each month to your savings.

But while scenarios give you a sense of what's involved in building wealth over the long term, it's important to remember that what seems clear and direct in a hypothetical example may not be so straightforward in the real world.

It's one thing to assume savings of $500 a month or 12% of salary over 35 years. But layoffs, career changes and unexpected expenses could easily wreak havoc with that plan.

The same goes for returns. You can easily calculate the average gains stock and bond mutual funds have delivered in the past. Predicting future returns is much dicier.

And even if you manage to forecast the average return for the next few decades, you still wouldn't know for sure how much money you would accumulate. That's because when you're adding money on a regular basis to a portfolio (or pulling it out), the annual or monthly pattern of returns determines how much dough you end up with, not the average return.

So rather than think of building a nest egg as a matter of plugging in a few assumptions and following an unwavering path to a definite outcome, look at it as taking a number of steps that, while not assuring success, can increase your chances of ending up with the money you'll need.

Here are four key steps:

1. Start saving ASAP. The sooner you begin saving, the more time your money will have to grow, and the larger the sum you'll eventually have at retirement, whatever return you earn.

Many of us don't get as early a jump as we'd like but that's not cause for despair. No matter how far along you are in your career, you can always improve your situation by saving.

So while starting from scratch at 40 isn't as effective as beginning your savings regimen at 30, it's a lot better than waiting to 50. And starting at 50 is preferable to starting at 60.

2. Push yourself to save more than you planned. Given the uncertainty in preparing for retirement, it pays to build a cushion into your planning. And that's exactly what throwing extra money into the savings coffer does. It provides a buffer that limits the downside should your investments earn less than you anticipated or your saving regimen falter at some point in the future.

So if you're planning on contributing, say, 8% of salary to your 401(k), try gradually bumping it up to 10% or even 12% to add a margin of safety.

3. Focus on your portfolio, not returns. No one knows what returns the market will generate in the future. So it makes little sense to set 8% or any number as a target, and then go hunting for investments you hope will be able to hit that mark.

A better approach is to build a diversified portfolio of stock and bond funds that will allow you to share in whatever level of gains the markets deliver. And instead of focusing on return, think about managing risk.

Typically that means starting out heavy in stocks when you're young and scaling back as you age when preserving capital becomes more important than growing it. You'd put together a portfolio that can give you the trade-off of risk and return that's appropriate for you.

Whatever blend of stocks and bonds you decide on, you'll keep more of the return that mix generates by sticking to the low-cost index funds and ETFs on our MONEY 70 list of recommended funds.

4. Look beyond the big number. Much of retirement planning these days revolves around finding "Your Number." And no number seems to capture the imagination more than a big round one like $1 million.

But the chances that a million dollars or any other figure will be right for you are low. There are just too many unknowns to calculate with any precision the exact amount you'll need years off in the future.

So rather than focusing on a number that may be misleading, you're better off going to T. Rowe Price's calculator that allows you to estimate how much you should save and how you should invest in order to maintain your current standard of living in retirement.

As your financial situation changes throughout your career -- your salary rises, your savings grow, etc. -- you can then gauge your progress and make adjustments to your strategy as you go along.

Or you can skip these steps, follow one of those simple scenarios you've heard about and shoot for that cool million.

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